Lazard is currently commemorating its 175th anniversary with pride. However, the 176th year is proving to be complex for this venerable investment bank.
In a recent report, the Financial Times revealed that Lazard engaged in preliminary buyout discussions with ADQ, the sovereign wealth fund of Abu Dhabi, but the talks were eventually terminated. While not entirely unexpected, these discussions reflect Lazard’s efforts to navigate a challenging deal landscape and increased competition. Additionally, there is a significant influx of Gulf money flowing into Western sports and financial institutions for both commercial and soft power reasons.
Unlike most professional services firms, Lazard has been a public company for nearly two decades. Despite a recent decline, it still holds an enterprise value of approximately $4 billion. The introduction of public, non-management shareholders is a relatively recent experiment, and its limitations are becoming evident in Lazard’s current predicament.
Lazard’s stock price is only slightly higher than its listing price in 2005. While it earned $1.7 billion in deal fees in 2021, these earnings are irregular and do not align with the steady, predictable profit trajectory sought by public equity investors. The asset management business was intended to provide stability, but Lazard Asset Management’s assets under management (AUM) of approximately $200 billion pale in comparison.
Going private could offer Lazard several benefits, including the freedom to choose growth strategies selectively. The company generates robust cash flow and has consistently paid a generous dividend over the years, currently yielding six percent. However, transitioning to private ownership would require buying out public shareholders at a price higher than the company’s intrinsic value, without compromising its unique independence.
Ironically, Lazard went public in 2005 to gather proceeds for buying out old-line shareholders. A more favorable alternative would have been to secure funding from an entity like ADQ back then, when the majority of the firm was owned by Lazard bankers, to acquire the minority stakes held by legacy owners. This approach could have avoided the lackluster performance as a public stock. Unfortunately, Lazard now finds itself with limited options and must continue as an independent public company.
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